Welcome to Stock Street’s very first, “What the hell is?” post. I will be periodically writing articles to explain financial concepts, economic concepts and programs you have heard of, but have no idea “what the hell” they are, or how they work. Today, we will be tackling: crowdfunding.
Did you know the very first crowdfunded full-length feature film is currently in production?! I am a movie buff, and I must say this is exciting. The future may be bright for those who love movies, and would love the opportunity to invest in a major motion picture one day.
“I’ll Be Next Door For Christmas” is currently raising money via equity crowdfunding to produce the word’s very first equity crowdfunded feature length film; and you can invest in the movie for as little as $100.
Before we get into the details of the movie, let us go over the different categories of crowd funding, and where this movie fits in.
The Four Categories of Crowdfunding
Donation Based
- Sites such as Kickstarter and Indiegogo allow individuals to create a campaign to raise money. Donation based campaigns are exactly what they sound like: they are donations. You should not expect to have any sort of return from a donation based crowdfunding opportunity. Donation based crowdfunding is likely for those who have an emotional attachment to the underlying program. Maybe someone needs funding for a medical procedure and it hits close to home. This is a great way to raise money for a project or cause, or to monetarily support a project or cause.
Reward Based
- With reward based crowdfunding, you give monetary support to a project. Unlike donation based crowdfunding, you will be given some type of reward in the form of a product or service for monetary support. Reward based crowdfunding has an element of commerce to it. You may feel great you are helping a certain project or cause, but you may give monetary support due to the product or service you will be given in return.
Lending/Debt Based (peer-to-peer lending)
- Lending based crowdfunding is considered an investment. Lending based crowdfunding is also known as peer-to-peer lending. With peer-to-peer lending, an individual is loaning money and, in return, is being compensated with interest. There is an element of risk to this as the company may not be able to payback your principal and interest payments. Peer-to-peer lending is far different from the donation and reward based crowdfunding. It is considered an investment and done so for the purpose of generating a profit.
Equity Based
- Our final crowdfunding category is equity based. Equity based crowdfunding is where our movie fits in. With equity based crowdfunding, you are investing equity in a corporation. You will be entitled to benefits such as revenue sharing and profit sharing of the corporation you invest in. Unlike peer-to-peer lending, equity based crowdfunding is done to take part in the growth of the company and its endeavors.; not just for the purpose of earning an interest rate. Equity based crowdfunding is similar to peer-to-peer lending in that they are both done to generate profits.
One way to think of lending based crowdfunding (peer-to-peer lending) vs. equity based crowdfunding, is to think of lending based crowdfunding as if you are a bank making a loan. Just like a bank makes a loan to a business and charges an interest rate, you are making a loan to a corporation and receiving interest.
Equity based crowdfunding is more like you are venture capitalist. You like the idea and believe it has future potential and would like to take part in the potential appreciation of that idea in the future.
Allow me to get the disclaimer part out of the way here before we go on. I am currently NOT invested in That Christmas Movie LLC. I am also not making a suggestion as to whether you should or should not invest in this opportunity. Rather, I will be highlighting the opportunity for educational purposes. If you like what you see, there will be links to the movie’s crowdfunding page so you can research the opportunity if you wish to invest.
“I’ll Be Next Door For Christmas” – An Example of Equity Based Crowdfunding
Structure
Equity crowdfunding involves making an equity investment in a business. If you invested in this opportunity, you are investing in an LLC (limited liability corporation) named That Christmas Movie LLC. The movie, “I’ll Be Next Door For Christmas” is the product of the LLC. By investing in the LLC, you are entitled to a portion of revenue generated from That Christmas Movie LLC.
Revenue Participation Rights
The opportunity is considered a revenue participation rights security. When you invest in That Christmas Movie LLC, you become an investor in the company. As an investor, you are able to take part in the revenue earned by the company. A revenue participation right security can be considered quasi-equity. As an investor, you have no voting rights in the company. However, you do take part in company profits/revenue.
Adjusted Gross Proceeds
All investors in the movie are paid 100% of adjusted gross proceeds until 100% of their investment is paid back. If you invest $1,000, you will receive your $1,000 investment back before any producer of the movie is paid their portion of revenue generated from the movie. After the 100% is paid back, you are entitled to 50% of the adjusted gross proceeds.
Pro rata basis
The adjusted gross proceeds are paid on a pro rata basis. This means it is paid proportionally based on the budget of the film and the investor’s proportional investment. If that confused you, just think of it as if you own the piece of the revenue pie you paid for.
For example, if someone made a large hypothetical investment worth 50% of the total money invested for the movie budget, that person would receive 50% of their portion of the adjusted gross proceeds.
If the movie made $1 million in adjusted gross proceeds after your initial investment was paid back to you, the piece of the pie for ALL investors of the adjusted gross revenue is 50% ($500,000). And since you would own 50% of the proportional money raised, you would receive 50% of that.
The piece of the pie for investors would be 50% of adjusted gross proceeds = $1,000,000 x 50% = $500,000
You would receive 50% of the $500,000 = $250,000.
Perpetuity
Sometimes in a structure like revenue participation rights, there is a cap to the amount an investor is paid back. This is not the case for an investment in That Christmas Movie LLC. The revenue participation rights for this investment are considered a perpetuity. This means the investor will receive their portion of adjusted gross proceeds forever. There is no limit to how long into the future the investor will earn this money.
About the movie
Release date
November 2017
Founders
Jay Kogen – Executive Producer – Writer: “Frasier“, “The Simpsons“, “Everybody Loves Raymond“.
David Willis – Director, Writer and Producer – Writer: “Cybill”, “Caroline In The City“.
Cast
Jennifer Tilly – Woody Allen’s “Bullets Over Broadway”
Cast and Crew Awards
Awards of the cast and crew according to startengine.com
- 4 Primetime Emmys®
- An Oscar® and Golden Globe® from the song, “I’ve Had The Time Of My Life”.
How to learn more about the movie
If you are interested in looking more into an investment into the movie, they have a detailed page on startengine.com. You can access their page on Start Engine by clicking here:
Here is a promotional trailer for the movie.
Thanks for reading!
Does anyone partake in crowdfunding? Has anyone invested in equity based crowd funding?
Disclaimer: I am currently NOT invested in That Christmas Movie LLC. I am also not making a suggestion as to whether you should or should not invest in this opportunity. Rather, the article is written for educational purposes. These are the ideas and opinions of the author. The author is not responsible for the actions of those who read the posts on this blog. Each individual reader has a unique situation and unique needs. This blog is not intended to solve those unique situations of the readers. This blog is not liable for decisions made by the readers of this blog.
